On 8/20/06, Michael Perelman <[EMAIL PROTECTED]> wrote:
Lou quoted Robinson about Mohammed's market friendly attitude. Many people are not aware that some of the earliest sophisticated texts about money and markets came from Muslims well before Adam Smith. For example, the scholastic doctors of Salamanca are traditionally credited with developing the quantity theory of money and the purchasing power parity theory.
What Jesus, Mohammed, etc. as historical individuals thought is one thing. What myriad varieties of Christians, Muslims, etc. have made of their faith is quite another. Just as slaves and slave owners interpreted the Bible from opposed perspectives, so have Muslims, for instance, under the Iranian Revolution. Read the following article, written from the perspective of an Iranian scholar in favor of free enterprise, against the grain of his preference, and you'll get glimpses of contradictory currents of Islamic thoughts on economy (especially ownership and control), social forces behind them, and political factions that represent them. <blockquote><http://www.findarticles.com/p/articles/mi_m2267/is_2_67/ai_63787346/print> Social Research, Summer, 2000 Islamic Revolution and the Management of the Iranian Economy Akbar Karbassian . . . . . . . . . . . . . . . . . . . . The Creation of the Public Sector The Islamic revolution in Iran succeeded in February 1979. In a popular referendum held in April 1979, some 98 percent of the participants voted "yes" to the establishment of an Islamic Republic. A constitution was hurriedly prepared and confirmed by another referendum held in December 1979. Representatives of a broad spectrum of divergent ideologies, ranging from hard-line Islamic Marxists to conservative religious Shi'i clergy, drafted the 175 articles of the Constitution. They united under the umbrella of opposition to the Shah and the struggle for Revolutionary Islam. The Shi'i jurists applied sharia-based scholastic criteria to wealth and property that had been acquired during the Shah's regime. The left-leaning Islamists, however, sought to destroy what they considered to be remnants of trade capitalism that had started to blossom under the Shah, aspiring to establish a classless socialist Islamic state. Out of the interaction of these opposing views a three-sector economy arose. The Constitution of the Islamic Republic identified public, private and cooperative sectors as the components of the Iranian economy. In the new Islamic Constitution, all property that had been acquired by "un-Islamic" means was declared illegal and made eligible for confiscation by the cleric-dominated state. The wealthy were automatically suspected of wrong-doing and foul play. In the pernicious atmosphere of frenzy and fear that followed the confiscation, several thousand companies and pieces of property were possessed, often forcefully, and transferred to the public sector. Many Iranian entrepreneurs and foreign owners fled the country. It took about 19 years and several hundred court cases until the Iranian government paid for each piece of confiscated foreign property, through the intermediary of the International Court of Justice at The Hague. Iranian entrepreneurs received no comparable compensation. Billions of dollars of liquid capital fled the country because of the widespread insecurity and revolutionary unrest. The theocratic regime created a new balance between private property and public ownership. The public sector, which comprised the government and the bonyads, served the function of the Bait ol-Mal, the early Islam fiscal department described in Islamic text, and its wealth grew as confiscation and de-privatisation continued. As the public sector grew, official antagonism to capitalism grew as well, hampering the development of a free enterprise system. Free competition and market economy operations were replaced by state intervention. The Iran-Iraq war, which began in September 1980, occasioned additional state regulation and control, with national mobilization demanded by the war economy. Rationing of essential goods by coupon, a practice that still continues (although to a lesser degree) was also introduced at that time. . . . . . . . . . . . . . . . . . . . . Without hesitation, the new constitution encouraged greater involvement of the state in the economy, at the expense of curtailing the free market. When the mass confiscation of private property was nearly completed, the management of a significant portion of this newly appropriated wealth was turned over to clerically-held, state-supported charity organizations. Through this change it became apparent that the Islamic government had no understanding of the significance of free enterprise and competition. Article 45 of the Constitution specifies that ownership of anfal, or spoils, and public wealth, such as mavat (barren lands without owners; abandoned lands, mines, lakes, seas, underground water, reed beds, natural groves, pastures, unclaimed properties and properties obtained by usurpation), must go to the state. Article 44 called for massive nationalization and threatened private capitol. It called for nationalization of all large-scale industries, mines, banks, insurance companies, power generating stations, dams, postal services, the telephone and telegraph service, shipping, aviation, roads and railroads, without compensation being paid to their owners. Some left-leaning clergy, against the clear evidence of history that casts prophet Muhammed as a private trader, managed to add nationalisation of foreign trade to this list. Thus, the multi-billion dollar foreign trade enterprise, hitherto in Bazaari hands,(2) was added to the list of public enterprises. Article 49 of the Constitution was the mandate most antagonistic to private capital, treating as spoils of the revolution the thousands of profit-making privately owned enterprises that were confiscated and transferred to the bonyads and the state. With puritanical and moralistic judgment, this article specified that the government shall take over all wealth allegedly derived by usury, usurpation, bribery, embezzlement, theft, gambling, misuse of religious endowments, government contracts, transactions, and sale of original mavat and mubahat, meaning ownerless properties, centers of corruption and illegitimate acts. When in due course the content of this article was fully implemented, public sector ownership had increased enormously, and the private sector had been reduced to near extinction. A decade later an unofficial estimate put the Iranian state in charge of 80-85 percent of national resources.(3) At the expense of destroying a burgeoning economy, the Islamic state had now become one of the richest, and possibly the strongest, state-owned and controlled economies in the world. Theoretically speaking, private sector activity was to be limited to areas and activities falling outside of those assigned to the state. The largest concentration of private sector activities was trade, followed by agriculture, small-scale enterprises, businesses, urban construction, and mining. Compared to the size and extent of public holdings and the power of foreign exchange generated by the state from the export of oil and gas, the private sector of Iran was extremely small. Semi-official estimates put the private-sector share of the national economy at between 15 to 20 percent. This made the Islamic state a mixed capitalist-socialist economy predominantly under clerical control. . . . . . . . . . . . . . . . . . . . . In 1993, the first serious steps were taken to strengthen the cooperative sector. Dormant for nearly 15 years, a Cabinet Minister was appointed and the Ministry received a budget allocation. This means that the cooperative sector is state-generated rather than self-generating, as in other countries. In the meantime, several thousand cooperatives have been set up adjacent alongside the public sector. However, these Iranian cooperatives depend heavily on the state's financial support. The cooperative sector was included in the Constitution because some Islamic jurists and Shi'i clergy believed that cooperatives truly reflect the spirit of equality and brotherhood in Islam. A large number of the cooperatives in Iran are consumer cooperatives, followed by producer coops, active mainly in the agricultural sector. In terms of administration, the government of Iran has been divided into three main parts. One part includes the 24 government ministries and the hundreds of related government organizations, state agencies, and units functioning under the ministries. The ministries are generally involved in the exercise of political authority. A larger part of the administration includes some 2,000 state-owned enterprises, banks, and insurance companies, all operated by state managers. These state enterprises produce several thousand types of goods and services. Many of these companies are outright monopolies, exercising economic authority in the name of the Islamic state. Finally there are the para-statal foundations that continuously receive heavy foreign exchange subsidies and special trade privileges from the state. For the purposes of accountability, however, they are considered independent units, active in the private sector. Many of the charity organizations and foundations, such as the famous Bonyad-e Mostazafan va Janbazan (Foundation of the Deprived and War Veterans), and Bonyade-e Shahid (Foundation of Martyrs), as well as municipal authorities, fall under this section. Overlapping and duplication of functions is common among the three parts that make up the public sector. State authorities have often spoken of reducing the size of the public sector, because it has grown too large, now accounting for almost 2/3 of the GDP. By controlling the public sector, the government intends to decrease the number of public employees and stop the growth of new state agencies, the number of which continues to increase every year. Nevertheless, anti-private-ownership slogans can still be seen on the walls of Tehran and in some of the press. These signs indicate that there is still no collective will to increase the prestige of the private sector or to provide it with greater security. The government continues to be suspicious of the private sector, and the old leftist faction remains hostile. While the present government wants to encourage more private investment, sporadic arrests on corruption charges of businessmen and state officials has further damaged the prestige of the private sector. In the public eye, the private sector spells corruption. Consequently, the economy continues to be lopsided and heavily run by and in favor of the state. This means that the Iranian government remains heavily involved in production, distribution and trade, failing to consider economic efficiency, price competition by producers and public accountability of state-run enterprises. . . . . . . . . . . . . . . . . . . . . Without the advantage of such support, the weaker private sector sank even further. As far as the hard-line Islamists and left-leaning clergy were concerned, the multi-billion dollar foreign trade had entered the public domain. Iran went backward from an emerging free enterprise system to state socialism. In addition, during the war years, Iran became further isolated from the world economy--this in a decade in which the world underwent major changes with regard to privatisation and de-regulation. To exploit the state monopoly over foreign trade, the Islamic state created some 12 "Procurement and Distribution Centers," each connected with a given ministry. Each one of the twelve centers was in charge of importing a cluster of related goods. These centers acted as intermediary agents between the industry as the end-user and the foreign suppliers. They collected service charges, taxes, and levies from the clients. Orders for imports of raw materials, machinery, spare parts, and finished products had to be placed with these centers and paid for by the state banks. The trade centers generally imported, with delays, the lowest quality raw materials at uncompetitive prices. The state monopoly of foreign trade created a huge government bureaucracy and cumbersome, wasteful procedures, and contrary to the laws of the free market. The system was not in tune with the requirements of a country planning for economic progress. By paying high prices for low quality goods, both consumers and producers suffered. The public monopolization of foreign trade placed the bazaaris, the traditional merchant class and staunch supporters of the Islamic state, at a huge disadvantage. During the Iran-Iraq war, when the state centralization and heavy-handed regulations dominated the country's war economy, bazaaris remained complacent, if unhappy with the state's monopoly of foreign trade,. Meanwhile, they collected fatwas, religious edicts, from prominent Shi'i jurists on the legitimacy of state monopoly of foreign trade, intending to reverse the relevant articles of the Constitution. Their efforts paid off in 1989, when the powerful Guardian Council(6) issued a ruling that the state monopoly over foreign trade is "contrary to Islam." They argued that all economic monopolies caused ezrar-e be gheir, meaning, "harm to third parties." All harmful acts to other individuals are contrary to Islam. As a result of this verdict, the state gave up its direct involvement in foreign trade and left these activities to the private sector. The President and the bazaaris welcomed the ruling, but the relevant article in the Constitution remained unchanged. De-nationalization of foreign trade did not mean encouragement of competition or enhancement of free trade. On the contrary, while private players were now free to act, the country's import and export rules were made more strict. For example, banks required one hundred percent cash deposits from Iranian importers prior to the opening of letters of credit (L/Cs). Cash and bank guarantees were also required from the exporters for insuring the return of foreign exchange proceeds. Trade proceeds had to be sold to the Central Bank of Iran at rates generally below the free market. Meanwhile, the rise in population and high costs of the war devastated the economy. From 1979 to 1989, per capita income of Iranians dropped by 50 percent. In 1989 most shops in the bazaars and streets of Tehran were generally empty of merchandise. The Rafsanjani Era The election of Akbar Hashemi Rafsanjani as President in 1989 generated a post-war reconstruction euphoria embued with hopes of prosperity. Rafsanjani was basically pro-private-sector, and he favored the greater involvement of private individuals and companies in trade and production. He had vowed to stop the growth of public sector, which had begun to bloat during the war. His term coincided with the passing of the country's first five-year development plan (1989-93) by the Majles (parliament). When in office, he proposed an IMF reform package that came to be known as "the structural adjustment program." This package included an orderly exchange-rate unification, increased fiscal discipline, trade and business deregulation, reduction of consumer subsidies, attraction of private foreign investment to the country, greater budgetary control over the parastatal public foundations, and privatization of loss-making public enterprises. The left-leaning Majles, however, resisted the president's reform packages and blocked the passage of the necessary legislation. Disillusioned, the President quickly abandoned his proposals and reversed course. In tune with the faction dominating the Majles he asked for larger subsidy payments and embarked upon spending on public sector reconstruction projects. The five-year plan was financed by state revenues from oil exports, and heavy foreign borrowings. It also included heavy borrowing from the Central Bank and the domestic banking sector. Massive state budgetary deficits were created, financed by large-scale Central Bank loans and commercial bank credit facilities. Bank loans caused inflation to dramatically increase. During the first five-year development plan, inflation averaged 24 percent per year. It soared up to 50 percent in 1996. . . . . . . . . . . . . . . . . . . . . Akbar Karbassian is a Lecturer at the Iran Banking Institute and is also affiliated with Azad University. Among his recent publications are "Budget and Budget Planning in the Iranian Economy" (in Farsi, 1999) and "A Note on the Islamic Banking Practice in Iran" (in Relazione Internationale, 48: [1999]). His book Iran: A SocioPolitical Assessment is forthcoming in Italy.</blockquote> -- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>
